The political and social commentaries of a man who embraces and loves life. Politics, Economics, Civil Liberties, Freedom, Nautical events, Sports, Culture, and International affairs thrown in. I am probably best described as a "fiercely independent contrarian environmentally conscious libertarian." Just when you think you have me pigeon-holed, I'll surprise you....

Wednesday, March 14, 2012

A little more than 7 years ago I began blogging, in part due to my outrage over the tactics used by Goldman Sachs in destroying their clients. The catalyst was their treatment of Ashanti Gold, the third largest gold producer in the world at the time, and the first black African company to be listed on otherwise 'white' stock exchanges. In abbreviated form I retold the story of the manipulation and destruction of that company here in a post that was re-published by the official news agency in Ghana (where Ashanti was headquartered) and which remains one of the top 10 most-widely read posts on this blog to this day.

It has been nothing short of horrifying, then, to watch Goldman Sachs manipulate the American economy in the last few years in much the same way, as its former employees and executives have esconced themselves within the US Dept of Treasury and Federal Reserve Bank offices.

Today, Greg Smith, a Goldman Sachs executive director and the head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa, is resigning...over the very issues we have been raising in this blog for these last several years. The full content of his resignation letter is posted below.

TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.
But this was not always the case. For more than a decade I recruited and mentored candidates through our grueling interview process. I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video, which is played on every college campus we visit around the world. In 2006 I managed the summer intern program in sales and trading in New York for the 80 college students who made the cut, out of the thousands who applied.

I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.

When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.

Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. My clients have a total asset base of more than a trillion dollars. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.

How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.
What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.
Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent. I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.

It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.

It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.

These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen.

When I was a first-year analyst I didn’t know where the bathroom was, or how to tie my shoelaces. I was taught to be concerned with learning the ropes, finding out what a derivative was, understanding finance, getting to know our clients and what motivated them, learning how they defined success and what we could do to help them get there.

My proudest moments in life — getting a full scholarship to go from South Africa to Stanford University, being selected as a Rhodes Scholar national finalist, winning a bronze medal for table tennis at the Maccabiah Games in Israel, known as the Jewish Olympics — have all come through hard work, with no shortcuts. Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn’t feel right to me anymore.

I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.

Wednesday, November 16, 2011

The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out foreign, as well as American banks since 2008. The audit of the Federal Reserve was carried out in the past few months largely due to the bipartisan efforts of libertarian Texas Republican Congressman Ron Paul and socialist Vermont Senator Bernie Sanders.

"As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world," said Sanders. "This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else."

Among the investigation's key findings is that the Fed unilaterally provided $16,000,000,000,000 dollars in financial assistance to foreign banks and corporations from South Korea to France and Scotland, according to the GAO report. From the period between December 2007 and June 2010, the Federal Reserve secretly bailed out these institutions, referring to them as loans, but virtually none of the money has been returned - it was loaned out at 0% interest.

Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion dollar bailout is obvious - the American public would have been outraged to find out that the Federal Reserve bailed out foreign banks while Americans were struggling to find jobs.

Make no mistake: The Federal Reserve System is the most powerful financial and economic institution in the world, with virtually no accountability to democratic processes.

As proof, the value of all good and service produced in the United States in the course of a year ("Real GDP") is 14 Trillion. The Fed gave away 16 trillion in Bailouts.

The non-partisan, investigative arm of Congress also determined that the Fed lacks a comprehensive system to deal with conflicts of interest, despite the serious potential for abuse. In fact, according to the report, the Fed provided conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans.

For example, the CEO of JP Morgan Chase served on the New York Fed's board of directors at the same time that his bank received more than $390 billion in financial assistance from the Fed. Moreover, JP Morgan Chase served as one of the clearing banks for the Fed's emergency lending programs.

In another disturbing finding, the GAO said that on Sept. 19, 2008, William Dudley, who is now the New York Fed president, was granted a waiver to let him keep investments in AIG and General Electric at the same time AIG and GE were given bailout funds. In other words, the Fed chose to use taxpayer money to grant funds to institutions in which the NY Fed President had personal investments and a vested interest.

The Fed outsourced virtually all of the operations of their emergency lending programs to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo. The same firms also received trillions of dollars in Fed loans at near-zero interest rates. Altogether some two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts - they were just "appointed" by Fed bamkers to receive and process the bailouts funds. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.

Monday, October 31, 2011

“a broker-dealer dedicated to helping clients discover and capitalize on market opportunities. We deliver trading and hedging solutions across all assets in markets around the world. MF Global is a leading broker of commodities and listed derivatives and one of 22 primary dealers authorized to trade U.S. government securities.”

But according to federal regulators, MF Global may not have ‘helped” its clients at all…rather, it has possibly gambled their clients funds away in yet another example of reckless activity by Wall Street financiers. By law, customers’ funds must be kept separate from company funds; it is suspected that this ‘firewall’ was breached by MF Global traders. As of this writing, $700 million in customer funds can not be accounted for. The commodities & derivatives trading firm is run by Jon S. Corzine, the former Governor of New Jersey and a former Goldman Sachs Executive.

Corzine was characterized at Goldman Sachs by his toleration of losses in trades, according to the book “Goldman Sachs: The Culture of Success,” by Lisa Endlich. Once at MF Global, Corzine bought huge debt holdings from Spain, Italy, Portugal, Ireland, and Belgium, all countries with significant fiscal problems...an approach that caused Forbes Inc Magazine Bob Lenzner to remark,

"This is called going against the grain with a vengeance. Stupid– and a tad grandiose."

As a result of those risky purchases (to the tune of $6.3 billion), MF Global reported a $191.6 million quarterly loss on Tuesday. Moody’s and Fitch then dropped MF Global’s rating to “junk” status last week, and the firm lost 2/3 of its market value. As the company’s reputation unraveled, MF Global sought a larger firm to buy it, negotiating through Black Rock Financial. Barclays, Citigroup, JP Morgan Chase, and Wells Fargo, all banks which have bought bad debt and then traded it for taxpayer-funded bailouts, wee all approached. On Saturday, it was thought that Jeffries & Company might buy MF Global; on Sunday, Interactive Brokers was rumored. But late on Sunday night, Interactive discovered that customer money was missing, ending the deal and setting of alarms among regulators. The Federal Reserve Bank of New York cut the firm off from borrowing.

Just a few hours ago, MF Global filed for bankruptcy protection.

Another example of American’s pensions gambled away in reckless greed. Another day of Occupy Wall Street citizens jailed for exercising Constitutional Rights…and another day of Wall Street banksters walking free.

Monday, April 19, 2010

The only ones who should be surprised by Fraud allegations levied against Goldman Sachs are insiders who have become so arrogant as to think that they were somehow untouchable. Personally, I am wondering why it has taken so long.

Together, much of the Wall Street Bailout process was designed by Treasury Secretary Timothy Geithner, Past President of the NY Federal Reserve Bank; Stephen Friedman, an ex-Goldman Sachs officer who still serves on the Board of the NY Fed; Hank Paulson, an ex-Goldman Sachs operative who designed the hedge funds that plunged the financial markets into turmoil in the first place; and Goldman Sachs financier Robert Rubin. As the crisis unfolded, Goldman Sachs continued to market these Hedge Funds to uninformed clients, even after becoming aware that mortgage-backed securities were crumbling. And when When AIG was bailed out...the primary beneficiary was Goldman Sachs.

And I have to ask: does this surprise anyone? This is a world-wide pattern that Goldman Sachs has utilized to enrich itself at the expense of everyone else for years. And perhaps there is no better example of this than the destruction of Ghana's largest company a decade ago: Ashanti Gold.

In 1998, Ashanti Gold was the 3rd largest Gold Mining company in the world. The first "black" company on the London Stock Exchange, Ashanti had just purchased the Geita mine in Tanzania, positioning Ashanti to become even larger. But in May 1999, the Treasury of the United Kingdom decided to sell off 415 tons of its gold reserves. With all that gold flooding the world market, the price of gold began to decline. By August 1999, the price of gold had fallen to $252/ounce, the lowest it had been in 20 years.

Ashanti turned to its Financial Advisors - Goldman Sachs - for advice. Goldman Sachs recommeded that Ashanti purchase enormous hedge contracts - "bets" on the price of gold. Simplifying this somewhat, it was similar to when a homeowner 'locks in' a price for heating oil months in advance. Goldman recommeded that Ashanti enter agreements to sell gold at a 'locked-in' price, and suggested that the price of gold would continue to fall.

But Goldman was more than just Ashanti's advisors. They were also sellers of these Hedge contracts, and stood to make money simply by selling them. And they were also world-wide sellers of Gold itself.

In September 1999 (one month later), 15 European Banks with whom Goldman had professional relationships made a unanimous surprise announcement that all 15 would stop selling gold on world markets for 5 years. The announcement immediately drove up gold prices to $307/ounce, and by Octoer 6, it had risen to $362/ounce.

Ashanti was in trouble. At Goldman's advice, they had bet that gold prices would continue to drop, and had entered into contracts to sell gold at lower prices. These contracts were held by a group of 17 other world banks. Ashanti found themselves being forced to buy gold at high world prices and sell it at the low contract prices to make good on the contracts. The result? In a few weeks time, Ashanti found itself with 570 million dollars worth of losses. It had to beg the 17 banks not to force the execution of the contracts.

Who served as the negotiator for the 17 banks and Ashanti? Goldman Sachs. The same company that designed the contracts for Ashanti(making a profit in their sale.

The basic bankruptcy of Ashanti drove its stock price from an all time high of $25 per share to a paltry $4.62 per share. Thousands of investors - your blogger among them - lost their investments almost overnight as Ashanti was declared insolvent.

In the end, Ashanti was purchased by their largest African competitor, AngloGold, a British company headquartered in South Africa, who bought them for a song. The Financial Advisors to AngloGold? You guessed it: Goldman Sachs.

The destruction of Ashanti Gold by Goldman Sachs was saturated with fraud and conflicts of interest: Goldman Sachs served as Ashanti's Financial Advisors; profitted form the contracts they designed and marketed for Ashanti; was involved in the manipulation of the gold prices on which the contracts depended; represented Ashanti's creditors when the contracts went bad; and profitted as the Financial Advisors to the company that picked up the Ashanti corpse for pennies on the dollar.

The Bailout of Wall Street - little understood by many Americans, and supported grudgingly by members of both political parties who operated on only fractions of the full picture (not unlike the Iraq invasion) - has Goldman Sachs' legacy all over it.

Prosecution of Goldman Sachs and Regulation of the Financial Industry is not evidence of "Big Government," "Socialism," or more "Washington Take-over."

It is an appropriate - and overdue - safeguard against Fraud and Theft, which, the last time I looked, was not antithetical to the principles of liberals, moderates, conservatives, or libertarians.